Pakistan to Grant India Most-Favored Nation Status

A report based on sources well-connected in the Nawaz Sharif government in Pakistan’s DAWN suggests that Pakistan is likely to make an announcement granting India most-favored nation (MFN) status on Friday this week. The announcement will be conditional on trade concessions from New Delhi. The issue of Pakistan granting India MFN status has long been a focus of trade talks between India and Pakistan and, if achieved, could serve to ease political tensions as trade relations improve between the two neighbors.

According to DAWN, MFN status for India “is expected to be announced after a special cabinet briefing to be headed by Prime Minister Nawaz Sharif.” Furthermore, “the cabinet decision, according to the source, will be conditional that Pakistan will allow import of all commodities from India via Wagah border and will abolish the negative list of 1,209 items in one go.” Pakistan’s Commerce Minister Khurram Dastagir Khan, in his talks with his Indian counterpart Anand Sharma earlier this year, sought reduced tariffs on 250 to 300 items before the MFN issue would be reconsidered. According to India’s Business Standard, the very term “most-favored nation” – a standard term in international trade and economic relations – was politically unfeasible for Pakistan. Accordingly, Khan noted that Pakistan is “now officially calling it Non-Discriminatory Market Access, or NDMA.”

After a tense year full of border skirmishes in 2013, trade talks picked up swiftly in 2014. Khan traveled to New Delhi in January and then described the MFN issue as a “red herring” which “distracts [India and Pakistan] from what is the real issue which is non discriminatory access and as [sic] well as a level playing field for both countries.” Nawaz Sharif’s government has made better relations with India a priority but refused to concede MFN status without concessions from New Delhi on tariffs. Khan’s trip to New Delhi resulted in a general liberalization of trade across the land border between India and Pakistan, which traditionally saw almost no trade activity. Under the liberalization, trucks and containers are to be allowed free passage, and the two countries liberalized the cross-border visa regime slightly to allow merchants easier passage. Following those advances, trade relations hit a hiccup when a truck incoming from Pakistan was found by Indian authorities to be carrying over 100 kg of heroin. In response to India seizing the heroin and arresting the driver, Pakistan ceased all cross-border trade temporarily.

India and Pakistan will in all likelihood miss their goal– agreed to in 2012 – of having bilateral trade top $6 billion this year. According to a source in DAWN, one of the concessions India will make to Pakistan will be a temporary short-term cut in duties to 7.5 percent for a period of six months following the MFN announcement – the duties will eventually be lowered to 5 percent in one year. It is likely that this will spur a temporary uptick in cross-border trade between India and Pakistan.